If you fund it, they will spend

When financial aid flows to affluent students, college raise tuition to capture the dollars, writes Andrew Gillen of the Center for College Affordability and Productivity. However, aid to low-income students, such as Pell Grants, is unlikely to push up tuition, he writes in an Inside Higher Ed essay.

Aid restricted to low-income families allows students who were previously priced out of higher education to attend, without giving colleges the ability to raise tuition without again pricing these students out of higher education. That is not the case with aid given to relatively affluent students who will attend college regardless of price.

Not all colleges will raise tuition, when aid rises, he adds. Instead, “many colleges will instead grow their applicant pool, allowing them to become more selective” and move up in college rankings.

“Don’t leave money sitting on the table” was the ethos, when he attended meetings with university administrators to discuss tuition, writes Peter Wood in a Minding the Campus discussion.

The metaphoric table in question was the one on which the government had laid out a sumptuous banquet of increases of financial aid. Our job was to figure out how to consume as much of it as possible in tuition increases. . . . A substantial portion of the money we captured would be reallocated as “tuition discounts” or “institutional aid.”

. . . And we did all this in the pursuit of educational excellence. It was a large private university in the shadow of world-ranked neighbors and it was attempting to pull itself up in the world of prestige and influence by its bootstraps. There were townhouses that needed buying; laboratories that needed building; faculty stars that needed hiring; classrooms and residence halls that needed refurbishing; symphonies that needed performing; grotesque modern sculptures that needed displaying; and administrators that needed chauffeuring.

Herbert London adds a quote from Derek Bok, a former Harvard president:  “Universities share one characteristic with compulsive gamblers and exiled royalty: there is never enough money to satisfy their desires.”

The federal government should provide college aid only to low-income students with performance criteria to weed out mediocre students, proposes Richard Vedder, Gillen’s colleague at CCAP.

Make the college absorb some of the risk for loan defaults — a lesson we should have learned from the financial crisis. Give Pell Grants as vouchers directly to students, not schools. Reinstate private lending options. Unveil new human capital contract approaches that reduce debt reliance. Downsize and reinvent federal programs and allow market discipline to operate more.

Student lending needs to be rethought, write Vedder and Gillen in a Chronicle of Higher Ed commentary.
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  1. “Reinstate private lending options.”

    By all means – but with no federal guarantees, and with the private loans dischargeable in bankruptcy.